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Shutting Down the US Federal Government Did NOT Cause “Net” Economic Losses

According to Standard & Poor, the American economy lost $24B as a result of the shutdown of the federal government. But the suggestion is without substantiation & fails as a matter of economic logic.

It turns out that the shutdown merely shifted or diverted spending from one destination to another or changed its timing. As such, there is no significant net change to the overall economy since it was mostly about a redistribution of spending from place to place or across time.

Among the identified “losses” are wages by federal employees & contractors as well as the value of lost government services.

While business owners that depend on tourists visiting shuttered federal facilities, their losses are offset by gains elsewhere. While some firms might have lost money or visitors during the shutdown, some other businesses must have had more customers than they might have as holidaymakers went elsewhere. Or if they cancelled their vacations or did not spend the money, they will have saved those funds, making them available for lending to boost investments.

The notion of “lost” spending reflects an inverted lapse of logic revealed in Bastiat’s “broken window fallacy” that depicts receipt of money spent on fixing a broken window as a net gain to the economy. Inasmuch as those funds would have been spent elsewhere in the economy were they not used to repair the window, they cannot involve a net economic gain.

In a similar, albeit inverse manner, whatever went unspent in one sector of the economy during the shutdown was either spent elsewhere then or will be in the future.

As it is, the notion of “lost” wages is poppycock since federal employees will receive back pay despite not having worked during the shutdown so that spending by them is merely deferred from then to now or later.

Perhaps only federal contractors will lose wages as a consequence of the shutdown, but whatever is not paid for them does not evaporate and will either lower the deficit or be spent elsewhere by the federal government.

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Content of "Natural Order" attempts to reflect the commitment of Universidad Francisco Marroquin to support the development of a society of free & responsible individuals. The principal commentator for this blog is Christopher Lingle.